Under the hood of the Asia-Pacific economy

On this week’s Policy Forum Pod, we hear from leading economists at the Asian Development Bank about how economies in Asia and the Pacific are travelling, and what’s needed to keep driving them beyond 2017.

In 1991, more than 90 per cent of Asia’s population lived in low-income countries. By 2015, the wealth of the region had taken a dramatic turn, with more than 95 per cent living in middle-income countries. What has this change meant for the region, and what will it take to shift gear again and reach high-income status? On this week’s Policy Forum Pod, economists Donghyun Park and Roland Rajah from the Asian Development Bank (ADB) take us under the hood of Asia and the Pacific’s economic engine, and discuss the latest from the 2017 Asian Development Outlook report. Listen here: http://bit.ly/PFPeconomy

Professor Donghyun Park is the Principal Economist from the ADB’s Economic Research and Regional Cooperation Department. Prior to joining ADB in 2007, he was a tenured associate professor of economics at Nanyang Technological University in Singapore. Dr Park plays a leading role in the production of Asian Development Outlook, ADB’s flagship annual publication.

Roland Rajah is an economist from ADB’s Pacific Liaison and Coordination Office in Sydney, and the ADB country economist for Vanuatu, Solomon Islands and Nauru.

The Asian Development Outlook is the ADB’s flagship report. Produced twice a year, it provides an economic forecast for 45 countries of the Asia-Pacific, as well as looking at a big picture theme for the region as a whole.

The theme for the latest report is ‘transcending the middle-income challenge’. As Park explains, a remarkable economic transition over the last quarter of a century has meant that more than 95 per cent of Asia’s population now live in middle-income countries.

“It has meant a remarkable increase in general living standards and equally importantly a sharp cut, sharp reduction in poverty rate across the region,” Park says.

“Poverty has fallen more rapidly in our part of the world than in any other parts of the developing world.”

The challenge now is for Asia to make the transition from middle-income status to high-income status. This will require a transition into new sources of economic growth in Asian economies, Park says.

“[The] kind of innovative economy, which Asia must shift gears to if it’s to become high-income, will be based on a skilled labour force. So better human capital, as well as more and better infrastructure, such as ICT and the broadband and Internet networks.”

While the recent track-record for Asian economies has been mostly positive, the picture in the Pacific has been somewhat less rosy. Apart from a slow-down in Papua New Guinea’s economy, the region has also been suffering the effects of natural disasters and climate change, as Rajah explains.

“The Pacific is one of the most vulnerable regions in the world to natural disasters, as well as climate change. As we all know, those two things go together, and climate change will lead to more natural disasters in the future, so the Pacific is highly vulnerable.

“Every time these disasters happen, that, of course, knocks down GDP, but it also has a lingering effect. The need to reconstruct, for example, pushes up government debt and puts a lot of pressure on the government budget. The high level of uncertainty, as well, deters private investment.”

And what change would the ADB economists like to see take place when it comes to the region’s economy? For Park, it would be a loosening of the tight links between government and big business.

“What that will do, it is going to create a more level playing field for new companies, new entrepreneurs, new firms, and these are really the biggest and most powerful sources of innovation.”

Donghyun Park and Roland Rajah were in conversation with Policy Forum’s Martyn Pearce. To listen to their recent Policy Forum public talk at Crawford School of Public Policy, click here.

This episode was produced and written by Martyn Pearce and Nicky Lovegrove. Special thanks to the Asian Development Bank for helping make this podcast possible.